Relatively high rates of U.S. inflation will increase the supply of, and decrease the
demand for, dollars in foreign currency markets.
The transactions demand for money will decrease when aggregate income decreases.
Commercial banks monetize claims when they sell securities to Federal Reserve Banks.
When commercial banks retire outstanding loans, the supply of money is increased.
A shift outward in the production possibilities curve is the direct result of improvements
in the efficiency factor for economic growth.
Balance sheets always balance because reserves must always equal liabilities plus net
worth.
The concept of a “political business cycle” suggests that a possible cause of
macroeconomic instability is due to the use of fiscal policy for political purposes.
Product demand is more elastic the longer the time period under consideration.
One of the most important economic resources is money.
The bulk of U.S. exports and imports are with developing nations.
Without regulations, monopolists will produce at an output level where marginal benefit
is greater than marginal social cost.
Total output for an economy is basically equal to work-hours divided by labor
productivity.
Monopsonists hire more workers than would be hired if the same industries were
competitive.
The United States faced the most serious financial crisis since the Great Depression
during the period of 2007-2008.
If government spending that gives rise to a budget deficit is for public investment
projects such as highways, this spending can increase the economy’s future production
capacity.
A decrease in supply of X increases the equilibrium price of X, which reduces the
demand for X and automatically returns the price of X to its initial level.
The impact of an expansionary fiscal policy may be strengthened if it crowds out some
private investment spending.
A positive cross-elasticity of demand for two products indicates that they are
substitutes.
The chemical industry is highly capital-intensive.
The currency owned by commercial banks is included in the money supply.
In the trade-off between equality and economic efficiency, an increase in equality will
lead to a decrease in efficiency.
When firms in a purely competitive industry are earning profits that are greater than
normal, the supply of the product will tend to decrease in the long run.
If nominal GDP for an economy is $10,444 billion and the price index is 110, then real
GDP is $9495.
Checkable deposits are a liability on a bank’s balance sheet.
The price of a resource is not directly a determinant of the price elasticity of demand for
the resource.
The implied production possibilities curve between work time and grades suggests that
more hours spent working will mean more income, but also less study time and a lower
grade average.
Lower bond prices reduce interest rates.
There is an asset demand for money because households and business firms use money
as a store of value.
Productive efficiency refers to long-run market conditions where marginal cost is equal
to marginal revenue.
Market failure occurs when not every consumer who wants a good can obtain it.
The production of durable goods is more stable than the production of nondurables over
the business cycle.
Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is
60, and the price of each input is $30. The level of productivity in this economy is:
A. 20.
B. 30.
C. 40.
D. 50.
To internalize the external costs of pollution is to:
A.levy taxes on manufacturing firms located in crowded urban areas.
B.auction off pollution rights to those willing to pay the most for them.
C.make the polluter pay all of the costs associated with the polluting activity.
D.require that private citizens rather than taxpayers pay for the harmful effects of
pollution.
Refer to the graph above and assume that the areas of the boxes are the same. Consider
a situation where price decreases from P2 to P1. In this price range, demand is
relatively:
A. inelastic because the loss in total revenue (areas D + G + I + J) is greater than the
gain in total revenue (areas C + F + H).
B. elastic because the loss in total revenue (areas C + F + H) is greater than the gain in
total revenue (area J).
C. elastic because the loss in total revenue (area J) is less than the gain in total revenue
(areas C + F + H).
D. inelastic because the gain in total revenue (area J) is less than the loss in total
revenue (areas C + F + H).
In the figure above:
A. triangle ABC represents the welfare loss to the society because of the monopoly in
the market.
B. if the firm is producing an amount QC (point C), it is maximizing profit because MC
= AC at that point.
C. point B, where MR = MC, represents the point where the difference between total
revenue and total cost is the largest.
D. point A, where MR = AC, represents the point where the difference between total
revenue and total cost is the largest.
Which market model has the least number of firms?
A. Monopolistic competition
B. Pure competition
C. Pure monopoly
D. Oligopoly
Under which of the following conditions would a profit-maximizing monopolist
necessarily raise price?
A. If product demand was price-elastic
B. If product demand was price-inelastic
C. If marginal revenue was greater than marginal cost
D. If marginal cost was greater than marginal revenue
Which makes it easier for a cartel to operate effectively over time?
A. Demand for the cartel’s product decreases.
B. Demand for the cartel’s product becomes more elastic.
C. The number of substitutes for the cartel’s product increases.
D. Each member firm observes the pricing and output decisions of other firms in the
cartel.
Suppose that the ABC industry produces a good that results in significant spillover costs
to society. Such production suggests that:
A.resources are underallocated to the industry.
B.resources are overallocated to the industry.
C.the firms in this industry are not maximizing profits.
D.at the market price, quantity demanded is less than quantity supplied.
Refer to the above graph. If the supply of money was $100 billion, the interest rate
would be:
A. 2 percent.
B. 3 percent.
C. 4 percent.
D. 5 percent.
A movement along the production possibilities curve would imply that:
A. the labor force has grown.
B. productivity has increased.
C. productivity has declined.
D. society has chosen a different set of outputs.
Which expression is another way of saying “marginal cost”?
A. total cost
B. additional cost
C. average cost
D. scarcity
Which statement concerning monopolistic competition is false?
A. Long-run equilibrium under monopolistic competition is achieved where economic
profits are zero.
B. Monopolistic competition is likely to result in a greater variety of product brands
than pure competition.
C. The monopolistically competitive demand curve is more elastic than the demand
curve facing a monopolistic firm.
D. Monopolistic competition does not lead to any economic inefficiency since firms in
this industry cannot sustain economic profits.
Which of the following is most likely to be a fixed cost?
A. Shipping charges
B. Property insurance premiums
C. Wages for unskilled labor
D. Expenditures for raw materials
The Gini ratio is determined by:
A. adding the area between the Lorenz curve and the diagonal to the total area below
the diagonal.
B. dividing the area between the Lorenz curve and the diagonal by the total area below
the diagonal.
C. multiplying the area between the Lorenz curve and the diagonal by the total area
below the diagonal.
D. subtracting the area between the Lorenz curve and the diagonal from the total area
below the diagonal.
Answer the next question on the basis of the following consolidated balance sheet for
the commercial banking system. Assume the required reserve ratio is 30 percent. All
figures are in billions.
Refer to the above data. The maximum amount by which the commercial banking
system can expand the supply of money by lending is:
A. $30 billion.
B. $23.1 billion.
C. $27 billion.
D. $15 billion.
Which is true under conditions of pure competition?
A. There are differentiated products.
B. The market demand curve is perfectly elastic.
C. No single firm can influence the market price by changing its output.
D. Firms that cannot make pure or economic profits go bankrupt.
A firm sells a product in a purely competitive market. The marginal cost of the product
at the current output is $3.00 and the market price is $2.50. What should the firm do?
A. Shut down if the minimum possible average variable cost is $2.00.
B. Increase output if the minimum possible average variable cost is $2.00.
C. Increase output if the minimum possible average variable cost is $2.50.
D. Decrease output if the minimum possible average variable cost is $2.00.
Issues of the distribution of goods and services and incomes in a competitive market
system are the primary topic of which fundamental question?
A. What goods and services will be produced?
B. How will the goods and services be produced?
C. How will the system promote progress?
D. Who will get the goods and services?
If the Congress passes legislation to increase government spending to counter the
effects of a recession, then this would be an example of a(n):
A. supply-side fiscal policy.
B. expansionary fiscal policy.
C. contractionary fiscal policy.
D. nondiscretionary fiscal policy.
Which of the following is most likely to be a private good?
A.Road
B.Bicycle
C.Park
D.City fireworks display
Diseconomies of scale:
A. pertain to the long run.
B. pertain to the short run.
C. are synonymous with diminishing returns.
D. are synonymous with increasing returns.
Which set best describes the basic features of monopolistic competition?
A. Easy entry, few firms, and standardized products.
B. Barriers to entry, few firms, and differentiated products.
C. Easy entry, many firms, and differentiated products.
D. Barriers to entry, many firms, and standardized products.
Two major criticisms of the Bureau of Census data as a portrayal of the degree of
income inequality are that the income concept employed is too:
A. broad and the income accounting period is too short.
B. narrow and the income accounting period is too long.
C. narrow and the income accounting period is too short.
D. broad and the income accounting period is too long.
Perfectly competitive markets explained on the basis of supply and demand:
A. assume many buyers and many sellers of a standardized product.
B. assume market power so that buyers and sellers bargain with one another.
C. do not exist in the real-world economy.
D. are approximated by markets in which a single seller determines price.
If the dollar depreciates relative to the Russian ruble, the ruble:
A. will be less expensive to Americans.
B. may either appreciate or depreciate relative to the dollar.
C. will appreciate relative to the dollar.
D. will depreciate relative to the dollar.
Recurring upswings and downswings in an economy’s real GDP over time are called:
A. recessions.
B. business cycles.
C. output yo-yos.
D. total product oscillations.
Which one of the following is true about the U.S. Federal Reserve System?
A. There are 12 regional Federal Reserve Banks.
B. The head of the U.S. Treasury also chairs the Federal Reserve Board.
C. There are 14 members of the Federal Reserve Board.
D. The Open Market Committee is smaller in size than the Federal Reserve Board.
Mutual interdependence means that each firm in an oligopolistic industry:
A. faces a perfectly inelastic demand for its product.
B. considers the reactions of its rivals when it determines its price policy.
C. makes a product identical to those produced by its rivals.
D. makes a product similar but not identical to those produced by its rivals.
From an economist’s perspective, which is not considered to be an investment?
A. Construction of a new factory.
B. Purchase of shares of company stock.
C. The building of an apartment complex.
D. Additions to inventories at steel plants.
Competition is more likely to exist when:
A. there is free entry into and exit out of industries.
B. there is a single supplier of all goods and services.
C. the government purchases most goods and services.
D. products are produced by a few large firms.
When a firm produces less output, it can reduce:
A. its fixed costs but not its variable costs.
B. its variable costs but not its fixed costs.
C. average fixed cost.
D. marginal revenue.
The graph above shows two production possibilities curves for a nation that produces
two goods, Y and Z. PP1 and PP2 show the production possibilities for years 1 and 2.
The nation’s total production then decreased after year 2. This change could be
represented by a move from:
A. F to A.
B. A to E.
C. F to B.
D. E to D.
An individual deposits $12,000 in a commercial bank. The bank is required to hold 10
percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit
increases the loan capacity of the bank by:
A. $11,000.
B. $10,800.
C. $9600.
D. $6000.
Refer to the above graph. Which point on the production possibilities curve would
indicate that there is unemployment in this economy?
A. A
B. B
C. C
D. D
Refer to the above diagram illustrating a market for pollution rights in which
government has fixed the supply of rights at 1,000 tons. If there were no market for
pollution rights in this case, the volume of pollutants discharged would be:
A.zero.
B.1,000 tons.
C.1,500 tons.
D.2,000 tons.